While the venture capital world slows, climate tech is bucking the trend as startups in the space continue to ink deals at a record pace. In the process, the sector is climbing the ranks.
In the first quarter of this year, five climate tech deals made it into CB Insight’s top 10 lists covering seed and venture capital rounds. In total, those five climate tech deals pulled in $1.4 billion in funding. By the second quarter, eight such startups made the lists, collectively drawing investments worth $2.5 billion.
The trend is even stronger if you omit data from China, where the Communist Party’s influence tends to distort the funding picture. Outside of China, climate tech’s presence in CB Insight’s top 10 lists jumped from two in Q1 to six in Q2, and investments rose from $635 million to $2.1 billion.
And there’s perhaps more to come, with SOSV general partner Pae Wu telling TechCrunch that there “appears to be a bunch of dry powder especially for early stage climate tech” in the market today.
Climate tech winners in the second quarter spanned a range of businesses, from renewable energy developers to EV manufacturers and nuclear startups.
The top deal in Q2 was a whopping $750 million investment in Intersect Power, a renewable energy developer that’s pivoting to become more vertically integrated. It plans to use the funds to eventually combine clean power production and storage with green hydrogen generation and direct air capture.
Next up is electric supercar maker Rimac Automobili with a $535 million Series D followed by the $316 million Series A raised by newcleo, a U.K. nuclear startup that’s developing a new generation of reactors cooled by lead. Chinese photovoltaic manufacturer Gokin Solar brought in $251 million in a Series A; 1Komma5, a German solar and heat pump installer, raised $218 million in a Series A; and Sun King, a Kenyan provider of off-grid energy, closed a Series D worth $216 million.
Rounding out the list, Arcadia, a U.S. renewable energy developer, raised $200 million in a Series E, and China Storage National Energy, which stores energy using compressed air, wrapped a $47 million seed round.
Broader trends in climate tech suggest something similar is happening across the sector, though landing on hard numbers can be challenging because the space is still in the process of being rigorously defined. Like the preceding clean tech boom, climate tech is a big tent. If one of a startup’s main goals is to address climate change, usually by avoiding or eliminating carbon emissions, then it’s in.
Though it’s not quite as big of a tent as clean tech — which welcomed companies that sought to improve environmental quality more generally — it’s still sufficiently wide as to make classification a bit tricky.
Still, it’s not impossible to get enough information to deduce where things are heading
What does the data say?
Despite the difficulty in nailing down precisely which startups fit inside the climate tech bucket, many data repositories are taking stabs at collecting and aggregating climate-focused venture capital activity. To get as full a picture as we can, we’ve pulled data from a number of sources regarding both recent activity in and leading up to 2022.
Data by accounting and audit group PwC regarding 2021 indicates that before this year, venture capital activity was ramping up in the climate space. For example, investment in climate tech startups surpassed $60 billion in the first half of 2021, up some 210% from the preceding year period, PwC reports. The same dataset also indicates that climate tech deals were getting bigger in early 2021, growing from $27 million to $96 million.
With that under our belt, it would not be a stretch to assume that the climate tech investing market is heating up. It’s not ironic but reasonable that as the planet warms, the pace of capital disbursement into the sector working to mitigate climbing thermometers is also rising.
We’re not alone in noting that rising temps could bolster investor interest in the climate problem set. Khosla Ventures’ Rajesh Swaminathan tied climate change to investment cadence, telling TechCrunch that “the continued lack of a climate-related investment package from the U.S., coupled with the urgency to address climate change, makes this even more critical for investors to step up and play a significant role.”
However, venture data gets a bit harder to align here onward. HolonIQ, a business intelligence platform that issues regular data reports on startup sectors, recently dropped a wealth of data regarding climate tech investment in the first half of 2022. The data indicates that climate tech fundraising is having a banner year, with some $26.8 billion raised in H1 2022, a figure that puts the sector on pace to surpass its $37.0 billion result in 2021 and already ahead of the $22.6 billion that the organization says climate tech raised in all of 2020.
For our purposes, the precise totals are likely less important than the directional movement. We care more that HolonIQ’s data is showing rapid growth than we are worried that its numbers don’t align with PwC’s in absolute terms.
While HolonIQ indicates that 2022 climate tech venture capital is off to an impressive start, it does have some words of caution as well. It said climate venture capital deals in the “second quarter [have] slowed quite significantly, month by month, compared to the first quarter.”
Indeed, HolonIQ charts indicate that climate deal volume peaked in March, while the most dollars were put to work in January. And, both venture vectors recorded a tailing-off as the second quarter continued, implying a slowing pace in general despite record results thus far in the year.
Between the PwC and HolonIQ data, things look rosy for climate tech startups, yeah?
Well, when data paints such a positive picture, we like to delve deeper to ensure we’re not eating information that has been overly pre-chewed. A quick search of climate tech tagged funding rounds in PitchBook for 2022 through mid-July and in the same period of 2021 shows an increase in funding but at a slower pace of growth and a smaller total amount of capital than evidenced by other datasets. Again, the direction matters more than the absolute figures, meaning that we consider the PitchBook data to modestly confirm our general take on the data as shared above.
On a similar trawl of Crunchbase data, again looking for confirmatory or discrepant third-party data to stress test our other sources, we hit a snag: We couldn’t find an industry tag for climate in our query of Crunchbase data. (Disclosure: Alex worked at Crunchbase for several years, helping found its news team. He retains shares in the company that were part of his compensation at the time.)
That said, the Crunchbase News team did pull data earlier this year on climate tech-focused software companies, looking at several dozen to get a feel for their fundraising efforts. The Crunchbase News team writes that the “smallish space” has been rapidly “scaling of late,” with the companies they looked at collectively pulling in “over $640 million in the past year [as of April 2022] — more than half of their funding to date.”
Of the $640 million that Crunchbase tracked for the cohort of climate software companies, the site said that “over 50 percent came in 2022 alone, indicating there’s a lot of money chasing a limited pool of fundable candidates.”
Summing it all up: PwC data indicates that climate tech funding has been heating up for some time now, while HolonIQ data points to a very strong start to 2022 fundraising in the sector. PitchBook data generally confirms an acceleration, while a more narrow Crunchbase dataset also points in the same direction.
In short, despite regular issues regarding categorization, a number of data sources state that climate tech venture fundraising is growing and kicked off 2022 at a high cadence. How the year ends will depend somewhat on macroeconomic factors that we cannot predict.
That said, the forecast is hardly cloudy, especially with SOSV’s Wu claiming that “the climate threat is a $100T opportunity.” Investors love a big market, and what’s bigger than the planet?
Editor’s note: This story has been updated with comments from investors Pae Wu and Rajesh Swaminathan.
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